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Growing Pains

Arizona sees gambling expansion in wake of Glendale dispute

Growing Pains

The recent settlement of a nasty, eight-year legal dispute pitting the sprawling Tohono O’odham Indian Nation against Arizona officials and several other American Indian tribes now promises to pave the way for a significant expansion of gambling in the Grand Canyon State.

Tohono O’odham in July announced plans to expand its Desert Diamond casino in the Phoenix suburb of Glendale into what tribal Chairman Edward Manuel calls a “world-class resort,” potentially rivaling the nation’s largest Indian casinos.

And Governor Doug Ducey has expressed a willingness to renegotiate tribal-state casino regulatory agreements, or compacts, in an effort to “modernize” Arizona’s nearly $1.9 billion Indian gambling industry. Sixteen tribes now operate 24 casinos.

“Gaming in Arizona has brought major economic opportunities while benefiting many state programs,” says Patrick Ptak, Ducey’s senior press secretary. “It’s also been a big success for Arizona’s tribal nations, and we are committed to building on that success.

“The governor is in the process of collaborating with Arizona’s tribal nations to modernize gaming compacts for the benefit of all parties. We intend to continue those discussions to create more opportunity for Arizonans and bring Arizona’s gaming into the 21st century.”

Tohono O’odham, which purchased the Glendale property in 2003 in a federal land claims settlement, this spring won over legal opposition to the casino from state and tribal officials who argued the project violated promises made in a 2002 ballot initiative.

Ducey and eight tribes signed agreements in November to amend tribal-state compacts allowing Tohono O’odham to proceed with the Glendale casino expansion but limiting further gambling development in the Phoenix area. Other tribes have since signed onto the agreement.

Tohono O’odham officials the following May also signed onto the deal, agreeing with the state and other tribes to settle all legal action opposing the project.

In exchange for the nation’s promise to halt future casino development in the Phoenix area, the state agreed to process the tribe’s applications for a liquor license and casino-style slot machines and table games. The tribe has been operating Class II bingo machines at a temporary facility.

The state also said it will not oppose the nation’s efforts to have its land adjacent to the casino taken into trust.

“They’ve come around,” Manuel says of the state and Phoenix-area tribes who filed lawsuits, sponsored congressional legislation and spent millions of dollars in a massive lobby effort aimed at blocking the project.

“We’ve settled our disagreements,” Manuel says. “We’re ready to move on. We’re ready to work together. I think all the tribes are unified now. We’ve decided to move forward.”

“The White Mountain Apache Tribe is confident that the compact amendment and future compact negotiations to modernize gaming in Arizona will have a positive impact upon Indian gaming in Arizona,” Chairman Ronnie Lupe of the White Mountain Apache Tribe said in a statement to The White Mountain Independent.

Considering Expanded Gambling

Ducey has not elaborated on his desire to “modernize” the compacts.

But sources involved in preliminary talks between tribes and the governor’s office are anticipating amending the compacts to lift machine bet limits and caps on the number of devices.

The two sides are also looking for wording in the agreements that would allow tribes to take advantage of potential expansion of federal and state-sanctioned gambling, particularly sports betting and internet wagering.

“That’s a discussion that’s on the table,” says a source knowledgeable of the talks who requested anonymity.

Indian tribes in 28 states operate government casinos in adherence with the Indian Gaming Regulatory Act (IGRA) and tribal-state compacts that define the scope of gambling that can be conducted on tribal trust lands.

The legal and regulatory restrictions limit the ability of tribes to take advantage of expanded gambling, posing a threat to indigenous governments whose compacts give them regional or statewide exclusivity to operate casinos.

The Arizona compact could serve as a template of sorts for tribes in other states limited by IGRA and state laws from embracing new forms of legal gambling.

Arizona and tribal officials also are seeking to amend compacts to allow for new games and a change in the revenue-sharing formula without going back to the voters, as was the case with the 2002 initiative.

“We are trying to avoid the political turmoil and significant costs of running a statewide referendum,” a source says. “I think we’ll need legislative action; I don’t think we’ll need another ballot initiative.”

Money Is Motivator

Revenue-sharing provisions are crucial to the negotiations. Tribes have in the last decade contributed about $1.2 billion to the state, roughly half of which has gone to education.

Other funds go to trauma and emergency services, tourism and wildlife conservation, regulatory costs, problem gambling programs and local governments.

The industry also employs some 15,000 workers.

Ducey is seeking additional funds to help alleviate state budgetary issues, particularly in education funding. “Modernizing” compacts may be a way to get more money from the tribes.

“I don’t know if additional revenue to the state is driving a lot of this or whether it’s driving some of this. But it’s a driver,” says a source familiar with the talks.

Ducey and the Republican state legislature have vowed not to raise taxes, which ties additional funds for education to getting a bigger share of tribal casino revenues.

Tribes contend they need to balance the benefits of compact concessions with additional payments to the state. Tribes now pay 1 poercent to 8 percent of net win to the state and local governments, or an average of 5.5 percent.

“The issue is always, ‘Do we get enough games and get enough expansion to pay for the revenue sharing?’” a source says. “Is there enough money in the equation to make this work? Trying to keep revenue sharing down to a decent level will be the trick.

“That and creating a provision that will allow the tribes and the state to come together and reach agreement about new games.”

Tribes will likely seek both an increase in machines, blackjack and poker tables and Las Vegas-style wagering that is now prohibited, such as dice, baccarat and roulette.

Growth On The Horizon

Tribes in 2016 won $1.87 billion, according to the Arizona Department of Gaming, far below the record $1.94 billion won in 2007.

But revenue-sharing payments for the last two quarters increased 4.2 percent to 4.8 percent, according to state officials, or roughly $26 million each period.

Economist Alan Meister, author of the Indian Gaming Industry Report, says a 5 percent revenue jump in 2015 marked the fifth straight year of growth.

Arizona is a reflection of what is happening throughout the nation.

The National Indian Gaming Commission, a federal oversight agency that audits tribal casinos, said the industry generated $31.2 billion in 2016, a 6.9 percent jump over the previous fiscal year.

Expansion of non-gaming amenities such as hotel rooms, restaurants, retail and entertainment is expected to fuel additional growth in Arizona.

But a big chunk of new industry dollars will come from Desert Diamond, located in a relatively untapped Phoenix-area casino market just a mile away from the University of Phoenix stadium, home of the NFL’s Arizona Cardinals.

Officials with the Department of Gaming anticipate a sharp jump in revenue from the massive project. But just how much is difficult to gauge.

“They’re a Class II casino, and even though they’ve been approved for Class III their plans are a little bit more long-term,” says Aiden Fleming, government and tribal relations manager for the Department of Gaming.

“We have zero oversight of the West Valley. I wish I could provide you more information, but right now we’re flying blind until they get Class III machines in there.

“We don’t know what they’re going to build. We haven’t had the discussions of how many machines they’re going to have or anything like that. We don’t know until they actually have something to show us and something we can approve.

“Until then, everyone here is kind of on standby.”

Breaking Ground

Work will begin by the end of the year on a $400 million, 1 million-square-foot resort with five restaurants, bars and a full-scale casino that will be more than double the size of the current facility.

Details of the eventual build-out of the resort have not been disclosed. But the potential is for a massive development that will, in turn, create a ripple of hotels, restaurants and entertainment in the West Valley area.

Gary Sherwood, a former Glendale councilman ousted in a recall election for his support of the project, said a number of major developers approached city officials when they learned of the Tohono O’odham project.

“Some of projects are contingent on West Valley Resort; the others, I think, the project would give them a boost,” Sherwood said in a 2015 interview.

The Glendale council initially opposed the project, but now embraces the prospects of jobs and economic growth. The tribe will pay the city $26 million over 20 years for public safety and infrastructure improvements.

The temporary casino will employ 500 workers with the build-out requiring 3,000 workers.

“We look forward to the future phases of construction and build-out of the resort,” a city statement reads.

A project summary by Analysis Group and Spectrum Gaming solicited by Tohono O’odham says the resort could generate $300 million in annual revenues, create a ripple of development and have a minimal impact on local casinos.

Seven Phoenix-area casinos will likely see only a 2.5 percent dip in aggregate gambling revenue, according to the summary.

Although existing urban casinos are located in the East Valley, the Gila River and Salt River Pima-Maricopa Indian communities—operators of five nearby casinos—believe the impact will be more serious than Analysis Group/Spectrum predictions.

But the Phoenix area is regarded by most industry analysts as a destination with room for gambling growth.

“Phoenix is unique in that it was a resort destination market before gaming ever happened,” says Matthew Robinson, principal of KlasRobinson consultants. “It is an underserved market. It can serve a lot more.

“The other tribes with casinos in that market are going to be impacted,” he says. “They are going to continue to be very successful. But anytime you grow the market there’s going to be some impact. There’s a pie there and you’re further dividing up the pie.”

For Tohono O’odham, the project represents potential government revenue to help the nation fund roads, utilities and other infrastructure improvements to a largely impoverished reservation extending from the Mexican border to just south of Phoenix and Maricopa County.

“This is a day the nation has long been working toward,” Manuel says. “The nation is eager to continue with its West Valley investment to create thousands of new jobs, positive economic development, and a world-class casino resort that all of Arizona can be proud of.”

The Glendale project is expected to dwarf revenues from the tribe’s three other largely rural casinos, helping fund needed government services to some 28,000 citizens. The three casinos generate about $68 million a year.

“That’s one of the reasons why Congress created IGRA—to allow the tribes to address their needs, which the federal government never provided,” Manuel says.

“That’s what we’re working toward, addressing infrastructure projects such as our roads, our power and water systems. Those are all major projects that require a lot of money.

“There are so many needs we have on the nation. Our educational needs, health care needs. We are not close to the state and the rest of society.”

Settling Differences

Construction in the early 1960s of the Painted Rock Dam on the Gila River flooded the San Lucy District of the Tohono O’odham Reservation, rendering some 9,880 acres unusable.

The Gila Bend Replacement Act of 1986, co-sponsored by Arizona Senator John McCain, provided the tribes with funds to replace the lost acreage. It specified that the tribe buy land in “Pima, Pinal or Maricopa” counties, the latter of which includes Phoenix.

The act also states the land “shall be deemed to be a federal Indian reservation for all purposes,” which the courts and Interior later construed to include casinos.

The tribe in 2009 announced its plans to develop the Glendale casino on 54 acres of unincorporated land. The land was purchased in 2003 through a shell corporation, a common practice used to conceal the identity of the buyer.

State and tribal officials—particularly the leadership of the Gila River and Salt River tribes—reacted angrily to the news.

They claimed Tohono O’odham was duplicitous, if not dishonest, in working with tribes negotiating a 2002 tribal-state regulatory compact and crafting an initiative campaign that barely won voter support largely on a pledge there would be no new Phoenix casinos.

The nation contributed $1.8 million to the voter drive that today gives 16 tribes the exclusive right to operate 24 Las Vegas-style casinos.

“They looked us in the face and lied,” Diane Enos, former president of the Salt River tribe, said of Tohono O’odham. “They broke faith with us and the voters of Arizona.”

Tohono O’odham denies any such promise was made.

“Anybody who has been paying close attention to the issue has every right to be upset with Tohono O’odham,” says a source familiar with the ballot initiative who requested anonymity. “They did break their word to the other tribes. They did sit by and do nothing while a campaign was being put together that promised no new casinos in the Phoenix area.

“It’s not so much that they lied,” the source says. “They didn’t make a material disclosure that everybody feels they were obligated to make.”

The 9th U.S. Circuit Court of Appeals last year affirmed a lower court ruling that the project complied with federal law and the state compact, which did not specify no casinos were to be built in the Phoenix area. It was the latest in a series of legal victories for Tohono O’odham.

“I put a pox upon the state of Arizona and a pox upon the legal counsel for the Arizona tribes for not reducing the understanding the tribes had into writing,” the source says. “The compact does not prevent Tohono O’odham from moving forward.”

Mediating the Dispute

Tribes feared the broken trust rising out of the Glendale project would impact governmental relations between state officials and Arizona’s indigenous communities. Lawyers and lobbyists for Tohono O’odham says those fears are exaggerated.

Relations between the various tribes remain strong. But unity was seriously impacted when Gila River and Salt River pulled out of the Arizona Indian Gaming Association, citing the group’s lack of leadership.

Eventually, however, tribes realized the Glendale battle was lost in the courts. That awareness led to the November accord with Ducey to amend the compacts, launch renegotiations on new agreements, limit new gambling in the Phoenix area and declare a truce in the war over the Glendale project.

Tohono O’odham, perhaps aware provisions in the existing compacts limit gambling and potential expansion of the West Valley resort, agreed in May to join in the negotiations, pledging not to pursue additional casinos in the Phoenix area.

Governor Stephen Roe Lewis of Gila River said “geographical restrictions against new casinos placed upon the Tohono O’odham Nation represent a victory for every Arizona tribe concerned with protecting what gaming means to our people and our economies.”

“We are hopeful the settlement paves the way for the Tohono O’odham Nation to join with other tribes and Governor Ducey in discussions to improve and modernize Arizona’s tribal gaming compacts,” Salt River Pima-Maricopa President Delbert W. Ray Sr. said in a statement. “We welcome the nation’s participation in this effort.”

“The Indian gaming industry in Arizona provides $100 million a year to fund education, trauma centers, tourism and wildlife,” President Russell Begaye of the Navajo Nation said in a press release. “The new negotiations with Arizona Governor Ducey will keep more Arizonan dollars here within the state to keep funding these important programs.”

The agreement also puts an end to the possibility of congressional legislation to prevent Tohono O’odham from putting a casino on land it acquired in the federal settlement. Tribal leaders said the “Keep the Promise” legislation sponsored by McCain would have established an alarming precedent.

“I continue to oppose the air-dropping of Indian casinos on land that is not contiguous to an existing reservation,” McCain said in a prepared statement.

The Arizona Republic editorialized that settling the dispute was a “win-win” for the state. Tohono O’odham had a solid legal case, the newspaper said, and the state was wasting resources in continuing to pursue litigation.

“Governor Doug Ducey’s negotiating skills will ultimately determine exactly what Arizona won,” the newspaper said.

Dave Palermo is an award-winning metropolitan newspaper reporter. He has written about American Indian governments for more than 20 years, working as an advocate for several tribes and tribal associations. He also has co-authored books on gambling and gambling law. He can be reached at